AI concerns are easing in chip sector: Analyst

The semiconductor sector is experiencing a rally following Advanced Micro Devices' (AMD) second quarter earnings beat, driven by strong AI chip sales. Angelo Zino, CFRA Research senior equity analyst joins Catalysts to discuss these market gains within the chip sector.

Zino observes that the chip space is undergoing its own rotation out of semiconductor and AI names, mirroring the broader tech market rotation. However, with AMD's earnings beat, he notes that fears about the sustainability of this momentum or the materialization of revenue from AI investments "is starting to ease."

With Nvidia's (NVDA) earnings results still some time away, questions are rising about whether the chip sector can maintain its momentum. Zino points out that catalysts can come not only from chip earnings but also from tech earnings and even analog plays like Texas Instruments (TXN). Nevertheless, he tells Yahoo Finance: "We think Nvidia's gonna post some great results. We think that's gonna be a catalyst for the space."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video transcript

A rally in chip stock, sending the broader markets into the green today.

The moves higher led by A MD which posted beats on revenue and profits in the second quarter.

We've also got to take a look at NVIDIA that's really driving today's action, those shares up just around 11% for more on that.

We want to bring in our next guest here.

It's Angelo Zeno.

He's CFR A research senior equity analyst, Angelo.

It's great to have you here.

So I'd love just to get your thoughts on, on NVIDIA.

This rotation back into some of these names that had been beaten down.

What do you think that upside looks like and whether or not some of this momentum in the chimneys is going to last?

Yeah.

No, thanks for having me.

So as far as kind of, you know, what's going on in the chip space right now, I mean, you, you kind of got this uh risk off of rotation away from, you know, kind of the semi A I infrastructure theme here over the last couple of weeks as you kind of had that broader rotation um theme really start to play out, it's it's really interesting kind of the combination of what a MD kind of came out with last night, kind of, you know, slightly boosting their, their GP UD center uh figure as well as kind of what Microsoft alluded to.

More importantly on the on kind of the the data center Capex side of things.

So we think kind of um as you kind of look ahead now, even into 2025 the fear of potentially maybe uh you know, some of this kind of momentum not lasting or maybe fear that um you know, the the revenue trajectory trajectory wouldn't be there kind of over the next 12 months or so, I think is kind of now starting to ease or at least you're starting to see some signs of that today.

Um Just given kind of the the data cap, uh data cap X number, data center cap X number from uh Microsoft.

So at the end of the day, um we think it bodes very well from kind of some of the biggest semi names out there, kind of more tilted to A I infrastructure specifically NVIDIA, um A MD Broadcom Marvel as well as uh M on the memory side of things.

And in video always is just so late to the earnings party, right?

I I'm curious from your perspective, given that we have such a long period of time to go before in videos, earnings print comes out.

Does that make the broader chip sector more vulnerable to a rotation as a MD earnings from earlier start to feel like more of a past memory as we wait for that next catalyst.

Yeah.

No, I mean, it, it's very possible.

I mean, when you kind of look at thus far into earning season across the semiconductor landscape, I'd say, you know, a couple of things that, that we're starting to see and, and it's really kind of super early right now.

But when you kind of start thinking about um the names that, you know, people are starting to, we're starting to get excited about some of those analog plays, right?

The, the Texas instruments, analog devices, uh you know, on semi Xen X PS of the world, you know, those companies are actually kind of looting towards, you know, a second half recovery.

Um that is probably going to uh not be as strong as maybe some had um originally anticipated.

And that's coming now, you know, at the same time that you're getting some, you know, pretty good numbers out of A and B.

So it'll be interesting to kind of see if this narrative kind of shifts back to A I infrastructure.

But that said um yeah, I mean, I think you make a valid point in, in terms of whether that kind, you know, these gains today can be held, see what, you know, what some of these kind of other uh mega cap names, um you know, come out with in terms of, you know, cap X and what, you know, the likes of Meta tonight, for instance, um and whether we see a boost on that side of things because that probably also continues to help the theme um if we were to see that.

But um yeah, I mean, to your point, I mean, we think NVIDIA is gonna post some great results.

We think that is gonna be a catalyst for the space.

But you're gonna have to wait um you know, a couple of weeks for that Angela, we've also got the uh Reuters report of the less severe US chip export rules as well.

I'm curious from your perspective how much of that worst case scenario has already been priced into these stocks?

And is that how much of that do you think is factoring in maybe to some of the relief that we're seeing today?

Yeah, I mean, listen, I, I think when we kind of look at um you know, the, some of the, the concerns from a geopolitical perspective, um our view actually with the combination of, you know, some of those geopolitical concerns as well as um election uncertainty out out there was gonna keep um some of these semi names um underperform here over the next 3 to 4 months or so, but we've seen kind of a huge correction.

Um you know, here over the last couple of weeks to the point where you, you, you could probably buy these stocks at this point in time.

But yeah, I mean, we think a lot of that bad news has been priced in here.

We do expect kind of more choppy action within some of these semi names here over the next couple of months.

Um, given that there is still uncertainty on the geopolitical side of things.

But nonetheless, I mean, some of the news that we, we've heard today, um, definitely a great um positive sign for a SML, which is absolutely a huge name.

The biggest name um from a market cap perspective on the semi equipped side of things for investors, Angela who might be listening to this.

And despite the downward pressure that we've seen in N VA, it's still just a little bit too expensive for them.

What would you recommend that they look at if they want to get into the chip sector?

Uh but they don't necessarily have the capital needed to get in on a name like NVIDIA.

Are there any kind of pick and shovel plays that you are looking at that we maybe don't talk about is the big heavyweight names as often as we maybe should.

Yeah.

No, I, I think that's, I think, you know, it's a good question.

Uh You know, we obviously we continue to like the NVIDIA play out there from a valuation perspective.

We actually think it's pretty enticing here on the 25% plus pullback that you had seen here in recent weeks.

But um that said, I mean, you know, a name like Marvel is a name that we continue to like a lot.

We have a strong buy recommendation.

Um They've continued to at least under perform on a relative basis to some of these A I themes out there.

More of a kind of a junior version to um what we see out of Broadcom.

But um they've really been hit from some of the cyclical downturns, you know, in non A I segments of the market that is now kind of really played itself out.

And as long as that A I momentum can, can continue on the marvel side of things, we think that name should start to work a little bit better here.

So that is a name that we continue to like.

Um and I think kind of, you know, uh when you look at my here, I think that name is really kind of been uh beaten to a pulp here.

I know there's some concerns out there, but, you know, capacity expansion on the memory side of things.

But we do think um things remain extremely tight on the memory side of things going into 2025.

And when you kind of look at the valuation at this point in time, we think it, it's extremely enticing.

All right, Angela, thanks so much for joining us this morning on this uh big tech rally driven by uh none other than NVIDIA for the morning.

Thank you so much.